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» Deficit Deductions from amcgltd
The Skeptical Optimist has a neat post that shows no matter which way you slice it, the US Government's debt just doesn't matter. That is, as long as we keep pursuing pro-growth policies. I've long known that even though... [Read More]

Comments

I think businesses should be required to send SS payments in cash, and a really big box should be built somewhere safe, preferably with a lock on it.

Then, when the cash arrives it could be dumped into the box and held safe for future generations! Dont forget to lock the box!

To quote Ricky Roma: "Money in a mattress."

Steve, as you are obviously aware this is really about the future. And, that's where the optimists like you and the pessimists (like me sometimes) depart.

My pessimism stems from the undeniable fact that no one (in politics anyway) is coming up with the bold and innovative ideas to grow GDP. Why we're content with this Goldilocks scenario is beyond me. Can you imagine a CEO in front of Wall Street talking about 2% top line growth and shrugging his/her shoulders? They'd get creamed.

Perhaps you've noticed I've become a bit more cantankerous as of late. That's because I'm frustrated and annoyed that we're not addressing big problems. Someone please explain to me why energy isn't our biggest problem..specifically transportation energy.

It's absurd that we're running around trying to placate despots and thugs, attempting to either police or change their behavior at the same time we're de facto funding it. We should be focussed on breakthroughs that would not only choke down the flow of petro dollars to these fanatics but would also give us the lead in the development of a breakthrough that would grow the economy and literally make the world a better place.

So, until that person or people emerge, I'm afraid my pessimism will persist.

"I wonder which candidates have some positive ideas about how to enhance the growth of the economy. [A few Republicans do (...not all)"

Which Republicans do have such ideas, Steve? And for what reasons? I'm just curious. Does Huckabee scare you like he scares some? I haven't heard him say anything all that scary.

"no one (in politics anyway) is coming up with the bold and innovative ideas to grow GDP" Isn't this a good thing? It seems like political strategies to grow GDP tend to be special interests (i.e. pork) giveaways. I'm a pessimist in this regard -- I'll take benign neglect.

"why energy isn't our biggest problem" I've heard that the average energy expenditures per household is around 5% of income (perhaps that's only gasoline and not heating). I believe that this SEEMS like the biggest problem because people fill up so often compared to getting a new mortgage, pay for college, etc.

"We should be focused on breakthroughs" This is always happening in the private sector. I'm afraid "focused" means government subsidies and mandates that'll ensure waste and lucrative tax write offs but little else.

Thank you Steve, for the best recent article on the debt and deficit.

For you pessimists here's a thought. If we never draw on the SS Trust Fund what happens to the debt?

Yes, it is possible that we will never draw from the SS Trust Fund. Every year we are extending the date when we start drawing, currently 2017. And we are also annually extending the date when we have completely emptied the SS Trust Fund. currently 2041.

Why is this happening? Because more people are working and getting paid higher wages feeding the trust fund. Will this end? No, but it will slow. If it does will it be a BIG or small issue?

With the current estimated dates we will have passed 1/4 of the impact years of the baby boomers. Another ten years and we will have reached the peak year(s) of the impact of baby boomers, AND the SS Trust Fund issue will be diminishing.

So, is Steve more correct than not about the growth issue? Does the debt actually have less impact than you thought? More importantly, are the left leaning economists talking about the "General Fund" deficit just fear mongering for some political agenda?

Bob:

It's partly about the future -- but before we can discuss the future intelligently, we need to get our assessment of the present and recent past correct. The question "Is the deficit or debt a problem" is significantly different from the question "Will the deficit or debt be a problem." Assertions that the general fund deficit is a major disaster are present-tense assertions.

I've noticed that the debate subtly shifts to the future (specifically, how bad the future is guaranteed to be) as soon as the present-tense dire-straits assertions get challenged.

The most frequent subtle shift to the future involves the looming Medicare cost disaster, which "will dwarf the social security problem." Oh really? Well, what's stopping Congress from changing that law right now, this year or next? If financial disaster in a decade is such a sure thing with the present law, why is Congress not focused on fixing it?

The future can be changed in a number of ways; the present and past should (one would think) be far less contentious. Is the unified budget deficit a problem? No, it is not. Will it be? Maybe, if Congress remains incompetently focused on hot air instead of legislating for the common good; but maybe not, if Congress fixes its mistake, or if sufficient economic growth saves their behinds once again.

"If they picked (b), congratulate them for choosing the method by which trust fund surpluses are already being managed."

Of course, the interest paid on trust fund bonds is paid in the form of ... more bonds, since it is impossible to place cash in those very same funds.

Personally I think that whole intragovernmental debt/trust fund house of cards should just be wiped out with the stroke of a pen. It wouldn't affect anybody in any way, and then we can eliminate all this doubletalk about unified and general and on-budget and off-budget and public debt and total debt. Plus, the national debt would be miraculously reduced from 9 billion to 5 billion.

I'm tempted to borrow $100 million from myself to fund my presidential campaign to promote this platform.

Accounting for the trust funds the way we do is a legacy of FDR selling the system as contributory instead of relief (i.e., each individual contributes to his/her own retirement, therefore the subsequent benefits are not charity). But that was 70 years ago; now we have Edwards, Reich, and others talking about various ways to undo FDR's foundational reasons for the program. (Edwards wants to remove the cap on FICA, Reich wants to exempt the first $xx thousand of income from the FICA tax; neither would change the benefits, so both of them would in essence turning FDR's system into a relief program.) I wonder if FDR is spinning in his grave.

Steve,

"If they picked (b), congratulate them for choosing the method by which trust fund surpluses are already being managed."

True...
Very True...

Can anyone tell me that they would place the retirement funds in their own 401(k) fund at risk in the stock market after they have retired?

I know the 'Buckets of Money' approach - and, I will use it. But, I will have 5 - 7 years of assets in government bonds, state bonds, corporate bonds, money market funds when I retire. I will start moving money from the stock market toward those assets as I near retirement.

Additionally, the only interest bearing account that Social Security can invest in is the Social Security Trust Fund. It is the only permissible investment Social Security can make - by law.

So, you have a choice.
1. A huge multibillion dollar mattress
2. A huge (3 – 5 day maturity) Treasury Note fund

So, that leaves my one concern:
Unlike my retirement 401(k) account, all of the drawdown for Social Security will come from one source – the Federal Government. My retirement withdraws will be spaced throughout the bond and money market economy. That, really is my only concern.

Here is a concern for the baby boomers (of which I am not):
Don’t be hoping your latch-key GenX children will be voting benefits to you. It ain’t going to happen – it is a rather hard nosed group of folks.

"Can anyone tell me that they would place the retirement funds in their own 401(k) fund at risk in the stock market after they have retired?"

Sure Boghie, as long you ask, I do have every intention of doing that, since I will still want to get a real return against inflation even at that point, I suspect. All it takes is prudent diversification across various asset classes and I'll be sleeping like a baby.

But I think you are on to something. I've contemplated the nature of the trust fund securities, since they are not real financial assets in any true sense of the meaning.

My conclusion is that they're best thought of as a means to make politicians in 30 or 40 years behave the way we want them to behave, now. We've wired the place so that the path of least resistance will be the status quo.

Okay, Steve, you got me. I tried to wedge the growth issue in. I'll keep doing it every chance I get. Growth won't cure everything, I know, but is sure beats hunkering down.

Jason:

Benign neglect didn't create the GI Bill nor did it build the interstate highway system. Both were sound investments in the future as Steve has so rightly illustrated in this blog.

In a more perfect world we'd have the government stay out of a lot of stuff. However, if the NIH is going to subsidize pharma research
(they do) and NASA is going to blow money studying rocks on Mars,
excuse me for wanting to shift just a tiny portion of their budgets (and the Dept. of Ed. as well) to energy.

With regard to energy as a percent of total income:

What would the impact be if it were 3% or %8%?

Would you prefer whatever the percentage is to go towards purchasing it as an import or would it be better if we were exporting the product and technology?

Boghie:

I'm hoping you put yourself through college. That way you won't have to worry about the sacrifices your parents made to pay for your education. Sacrifices that could have gone in their retirement account.

"We should be focussed on breakthroughs that would not only choke down the flow of petro dollars to these fanatics but would also give us the lead in the development of a breakthrough that would grow the economy and literally make the world a better place."

Let's do both! How about drilling for our own oil, building refineries, and bringing dozens of nuclear power plants on-line and make the despots' and thugs's petrodollars irrelevant. In the meantime we can develop the "alternate energy sources" that will be economically viable, practical, and in wide use several decades from now.

It is eco- and regulatory-terrorism that is keeping us from "energy independence" and forces us to "placate despots and thugs." If not for the road blocks placed by the above political groups over the last 30+ years after the oil embargoes of the 70's, we would be holding the trump card, while we are waiting on magnetic cars.

This is a political problem, not one of innovation. When we get 0-carbon energy, these anti-capitalists will find some other reason to prevent us from advancing. It's all about preventing the Darwinian death of collectivism.

Bob,
When it comes to studying Mars rocks, I ask the question what would those people at NASA be doing if they were not employed by NASA? Are there enough private sector jobs so all those people could be employed elsewhere? Some say if the govt cut spending and reduced the deficit the economy would be better off and more jobs would be created. I recall the late 1990s the Republican Congress did just that. And the economy tanked and unemployment went up.
I would suggest reading Warren Mosler's "Soft Currency Economics". Steve has linked to it in previous post. It explains modern fiat money and govt spending very well.
As for studying rocks, did you know the lunar rocks returned from Apollo revealed the surface of the moon contains an abundance of Helium 3 - a rare isotope of Helium here on earth. It could be used in a fusion reactor to generate huge amounts of energy with very little radiation. One 7 ton shipment could supply the U.S. with 1 year's worth of energy demand. The investment required to obtain the fusion technology and return the material from the moon could be similar to winning WWII, but well worth it if you ask me.

I find it a bit disingenuous that you manufacture this straw man who is supposedly politically motivated and who apparently does not have a cursory appreciation for accounting and deficits. Oh, that stupidly naive straw man!

But you seem to be the one throwing inferences about Democratic and Republican candidates when you lament:

"...I wonder which candidates have some positive ideas about how to enhance the growth of the economy. [A few Republicans do (...not all); but I'm having trouble remembering any specific growth proposals from any Democrats. "

Are there any metrics on GDP growth correlated to campaign promises made or not made? Is economic growth more a function of the business cycle or the election cycle?

Joe:

You're right. We should do both. I get fixated on alternative transportation energy, I guess. I like the idea of an innovative product that we can export.

Mark:

Cold as it may sound I don't really care if some people at NASA would lose their jobs. Why should they be exempt from something that happens in the private sector all the time?

Regarding shipping lunar rocks (all 7 tons of them), if it made economic sense to do so, I'd want to take a look at it. Your reference to the cost of WWII does sound a bit pricey, though.

Mark and Bob:

From what I have found online, the second world war only cost about $300 billion dollars, which wouldn't be so outlandish for a years worth of power.

Of course, that was $300 billion in the 1940s, which would be like $3 trillion today.

Steve,
In regards to the brain-teaser, is there an option C that, if allowed by law, would be more “fiscally responsible” considering the knowledge of the likely funding requirements associated with boomer retirement, a high rate of health care cost growth, and moderate economic growth projections?

As a Gen Xer, Boghie has it right, why should Gen Xer’s vote to maintain currently promised benefits for boomers knowing that a) the money could have been invested in assets that aren’t themselves government liabilities—high grade corporates?--(and therefore be a non-government asset supporting future payments rather than an asset that is simply an obligation on future taxes or borrowing) and b) this is also a matter of generational fairness—why should Gen Xers face a substantially higher tax rate (likely under current conditions / projections) which directly diminish our standard of living?

I agree that it is a win-win if we can grow the economy to both pay promised benefits and not increase tax rates on younger generations. But in the absence of being able to grow the economy, there is a generational fairness issue that will need to be addressed. Personally, I’m willing to meet half way—boomers give up some promised benefits and I’ll willingly pay higher tax rates than my parents did because I happen to think it is the “right thing to do” despite government’s mismanagement.

I understand that under current law, the government doesn’t have much choice in how to manage the trust fund “surplus” but assuming the law can be changed, is there an option C that is better considering demographics, health care cost increases, and resulting annual funding requirements?

Mark G Fm PA, your option C is not so good. What would happen when the US Govt became the largest creditor in history? Buying up ever more private sector bonds, starting with the most secure, until they ran through most of the lower rated.

What people miss is the massive size of the annual Fed impact. Start accumulating at that level for a couple of decades, and the US Govt becomes the owner of many business as they default. Or worse, taxpayers start lending even more to keep business going because they own so much of it already. In poker, "pot committed."

Yup, just what was planned.

Grodge:

About a decade ago, after finding Paul Romer's work, I decided I was with the endogenous growth side of the debate, as opposed to the exogenous side. (Exogenous: "growth just happens"; endogenous: "policy can affect growth.") Since then, I've been detecting that those to whom redistribution is a higher priority seem to favor the "growth just happens" view -- which makes sense, because the complex debate about how to enhance growth becomes unnecessary when one can just assume there's nothing we can do about it. And if it's unnecessary, anyone trying to argue otherwise can be accused of setting up straw men.

The current social security trust fund balance is ~$2,181 billion running roughly $175 billion annual surplus for the 12 month period Oct 06 – Sept 07. (ftp://ftp.publicdebt.treas.gov/dfi/tfmb/dfifo0907.pdf)

According to this source (http://www.sifma.org/research/pdf/Overall_Outstanding.pdf) the size of the U.S. corporate bond market in 2006 was ~$5.3 trillion with 2006 new issuance of ~$911 billion (http://www.sifma.org/research/pdf/Corporate_HY_IG.pdf).

“What would happen when the US Govt became the largest creditor in history?”
On cursory glance, it looks like the ENTIRE social security trust fund would / could “consume” ~41% of the U.S. corporate bond market in total and in 2006 just 19% of the new issuance. I don’t see a problem there. Considering that the trustees are projecting the need to start cashing in the trust fund assets in ~2017 when the surplus is projected to stop, the US govt’s “creditor role” will actually stop once the surplus stops.

“the US Govt becomes the owner of many business as they default” … When a corporation defaults on their bond payments I don’t think ownership reverts to the bond holder. I’m thinking bankruptcy proceedings…selling of corporate assets to make the bond holders as whole as possible…

“taxpayers start lending even more to keep business going because they own so much of it already.” I’m not sure what you mean by this. I don’t know of any taxpayers who lend the government money or would seek to do so if a government trust fund began investing in non-U.S. government assets. I don’t know about you, but I like to keep what I make and decide who I want to give it away to or invest it for as I deem appropriate. Besides, aren’t taxpayers already motivated to keep business going—jobs, income, government revenue, pension assets, 401k assets, 529 assets, etc?

As a Gen Xer, I’d prefer that the government’s trust fund “assets” that will be needed to pay social security to boomers (and eventually younger generations) wasn’t entirely higher tax rates that I’m likely going to have to pay—I’d prefer the assets would be maturing corporate bonds (or some other asset that was external to future tax revenues or government borrowing) in addition to the revenue that will be raised in the future at CURRENT payroll tax rates.

Not to get hung up on the U.S. corporate bond market but are there other better choices than a) or b)? I think it is unfair that younger generations are likely going to get stuck holding the bag on this unless we see some phenomenal economic growth come our way (fingers crossed.)

Steve,
Again, are there any metrics that show a correlation between campaign rhetoric and eventual economic growth?

I guess what I'm getting at is that the Repub candidates will tell their base what they want to hear: lower taxes, simpler tax code, less regulation, etc... and the Democratic candidates will do likewise: more entitlements, more gov't intervention and regulation, etc.

The point is that the campaign rhetoric does not necessarily translate into any substantive change in the basic principles of governance-- at least not at the federal level. Paul Romer agrees that we need regulation, we need entitlements, we need to protect intellectual property, fight wars, educate the next generation and take care of the elderly. All these things take revenue and the revenue comes from taxing income, payroll and consumption in varying amounts. The haggling comes in the proportion of income needed from each source and the drain that taxation has on economic growth and innovation.

Why the pot shot at the Democratic candidates? One item that comes to my mind is health care, a major Democratic meme. Where I work the main concern for most employees I talk to is their health care coverage (we went around on this in the previous discussion about compensation vs. wages). By linking health insurance to employment we tend to stagnate employees ability to leave their job to, say, start their own business; or we limit a small company employer's willingness to take a risk to grow his company by employing more people.

By providing affordable health insurance, subsidized by the government, we could unleash a wave of innovation through small business growth that is pent up in our society. Every entrepreneur I know had to take a chance, and every single one I know had to go without health insurance for a period of time. A guy with a family may be willing to lose income for a few years, but it is doubtful that he will forgo health insurance for his family to start an innovative new business, so instead, he stays employed at DrugCo Conglomerated solely for the benefits, and we all lose the advantage of his creativity.

Romer talks about the benefit of portability of federal tax-supported research grants in academia, and how that would increase competition among universities for the best talent, etc. I would make the same argument with health care insurance, and I hear more Dems pushing for federal subsidies for that than Republicans.

Sorry for the ungodly length of this comment. (As always, I am enjoying your insights and the high level of discussion.)

"The point is that the campaign rhetoric does not necessarily translate into any substantive change in the basic principles of governance-- at least not at the federal level."

Since there have historically been tax cuts and deregulation of many industries, I think you safely assume that campaign rhetoric is sometimes followed up.

"By providing affordable health insurance, subsidized by the government, we could unleash a wave of innovation through small business growth that is pent up in our society. Every entrepreneur I know had to take a chance, and every single one I know had to go without health insurance for a period of time."

Or we could simply de-link healthcare from employment. Also, you might want to ask yourself why the entrepreneurs you knew went without health care....it was a cost-saving decision they made. They could easily have paid themselves a salary and bought their own health insurance. (Let me guess they also took a salary cut to start up their business...should we subsidize that, too? And their office rent? And their retirement plan? Their car insurance? If we make starting a business risk free, I bet we could get a ton of new entrepreneurs!)

Sorry, I see that you also want to de-link healthcare from employment, and replace it with some form of government subsidized insurance.

I agree to de-link, but keep it private.

BTW, you also forgot that your entrepreneur friends actually did not go without healthcare coverage.

They could get medicaid if they were poor enough. (And if you are taking no salary while starting up, you are poor.) And their children are covered by SCHIP.

So, the government is already providing a subsidized healthcare safety nets. Why do we need to increase that?

There can be no special social security fund, separate from general revenues.

The government must instantly return to the economy every penny it takes in, either by spending it or buying back public debt, lest the money supply fall.

Money isn't wealth. It's a ticket in line to say what the economy does next, presumably something for you. The Fed creates or soaks up tickets so that the number of them matches what the economy is capable of doing at once.

It doesn't even help Social Security to hoard tickets for some future time, even if it could do so. What matters is what the economy is capable of at that future time, and nothing else. Future workers will be doing the work, not today's.

The government can print tickets but it can't print wealth.

Ron Hardin
Well said! I once heard the analogy that money is like subway tokens. The transit authority makes the tokens and distributes them to the public for use. Does it make any sense for the transit authority to hoard tokens for future use if they expect an increase in the number of riders in the future? Or does it make more sense to increase the capacity of the system to carry more riders? The same holds true for the economy. The government running a surplus in a trust fund makes no sense - the government can create the money at the time it is needed. But the economy had better be able to produce the goods and services required by a greater number of retired people. And the answer to that is producivity growth which is fueled by economic growth.

The democrats do of course claim that their universal health care plans are pro-growth. I am somewhat sympathetic to the argument that our current health care policy makes little sense, and there is certainly some good evidence that we get a pretty poor return on investment in this area. I'm not sold on universal healthcare yet, but I am willing to consider that our current solution may be the worst of both worlds.

In any event, they do claim it to be a pro-growth policy and it is arguable that a universal health care system would allow greater job mobility and entreprenurialism then our current employee provided health care paradigm.

“There can be no special social security fund, separate from general revenues. The government must instantly return to the economy every penny it takes in, either by spending it or buying back public debt, lest the money supply fall.”

Is this by statute or some universal law of economics?

I’m suggesting that given what we face demographically, health care inflation, the current structure of our entitlement programs, reasonable expectations of economic growth, and a sense of generational fairness (if as an American society we even care about this last one) that it would be more prudent for the trust fund surplus to have assets that aren’t themselves claims on future taxes but rather some alternative like principle and interest repayments from private entities that likely made productive use of that capital.

Is doing that a matter of political will or would that violate some universal law of economics? What is the flaw in this thinking?

My underlying assumption is that projections of the current situation indicate much higher tax rates (likely affecting younger generations more than older generations) to fund what is promised and the other activities we've come to expect from Government (like a strong defense.) I'm open to rethinking what the federal govt does for its citizens but we know most people aren't there--yet.

Let's all keep rooting for GDP growth (and an adequate income distribution so we have a relatively broad tax base!)

There's no social security crisis at all. What will happen is that the retirement age for benefits will rise to match the demographics, so that the number of workers is large enough to willingly support the number of retirees.

If you want to retire earlier, you do it on your own dime, to bridge the gap between your desire and the age that benefits kick in.

Life-extending medical miracles mean that you work longer, in short.

What social security is, is an inflation-protected annuity to guarantee that you don't outlive your income. The market for it exists because people can save for an average lifespan, but not for outlying longevity lifespans. That's what it's insuring against.

A simple concept, and fine for the government, inflation not being an insurable risk for the private sector.

Simply change the retirement age to balance the system, whatever it turns out to require demographically at the time. It's hard to find the crisis in it.

The same thing happens if you finance the system privately, by the way. Everybody can't save at once, the actual mechanism being that there are too many people buying stocks now, and too many selling them at once in the future, which reduces the rate of return on investment. To what level? So that you don't retire until an age so that the demographics work out. You need enough working buyers to finance the selling retirees.

The difficulty privately is that it's hard to get inflation protection over the span of time that you might live, if you're one of the long-living outliers.

Aaron,
Thanks for the comments. You state:

"Or we could simply de-link healthcare from employment."

Sure, and that would be preferable to the current system. The problem is that the healthy would likely not bother to pay for coverage, yet would still use the resources when they get sick and likely pass the expense onto others when they get the astronomical bill. Health care should be mandated and de-linked from employment.

You state to de-link it, but "keep it private." No problem, and the democratic candidates would agree. But folks who have lower incomes, the younger workers, students, etc, would need to be subsidized. That's the point.

You state: "BTW, you also forgot that your entrepreneur friends actually did not go without healthcare coverage."

No, actually a few of them did go without coverage and rolled the dice. Fortunately, nobody I know went bankrupt because of it, but that is no way to run a country's health care.

The other point you made about Medicaid and SCHIP hit one of my triggers. These are NOT insurance, they are WELFARE, ie, charity. Physicians who take this form of payment LOSE money with each patient they see because the reimbursement is terrible, often 25 cents on the dollar, and docs do this as a service to their community, but an increasign number are not accepting these payments. Call a random internist's office and tell them you have Medicaid and see how long it will take for a routine exam. To incentivise middle class people to utilize this form of coverage would render the current system even less workable (which is why I am totally against any "expansion" of SCHIP, as is Hillary; if you read her health care proposal she is the only Dem to say "strenghten" and not "expand" SCHIP.) Those of us responsible enough to have insurance are paying a stealth tax to offset the costs of those who are not paying; we should at least be up front about the hidden costs of the uninsured and underinsured.

One large problem with health care coverage is that the risk pool is not large enough and private insurers and employers skim off the healthiest customers and leave the sickest on the public dole. By expanding the risk pool to 300 million citizens and requiring everyone pay something into it, via taxes (regessive and progressive), the costs can be spread more equitably.

My argument is that this may be one of the largest weights on our economic growth because people are stagnated from developing their creativity and taking risks.

Health care is a right-- whether you agree in principle or not--just like use of highways, the postal service, police and fire services. If you get sick or injured, you will not be left for dead; you may go bankrupt paying bills, the doctor may not get paid, but you will get the care because health care is a de facto right in western civilization.

What if you had to pay voluntary premiums to get firemen to come to your house? Most would pay, but others would chance it. Are the firemen supposed to check coverage before saving your life? And then deny it if you can't produce a valid insurance card? This is what happens every day in health care today, except doctors and hospitals are not allowed to turn anyone in need away, so they either eat the cost or pass it along to everyone else.

This is pretty far afield from the original discussion, but the main argument is that universal health care would stimulate economic growth by making the system more workable and equitable. And the Republicans refuse to accept this tenet, except McCain who trails in the polls for some unknown reason.

One very last point: the canard about "letting people make their own choices" is fatuous. I tend to be libertarian on most things, but I'm a physician and I cannot even begin to understand the mish mash of deductibles, co-pays, point-of-service plans, peer-provider networks, health maintenance and wellness programs, out-of-pocket expenses, pre-existing illness limitations and lifetime benefit provisions in policies. Now, go to the dep't of motor vehicles and try to explain those provisions in even stark outline to any three random people waiting in line. Good luck.

Ron,
I see you are in the optimist camp! "What will happen is that the retirement age for benefits will rise to match the demographics, so that the number of workers is large enough to willingly support the number of retirees." Fair enough.

If this is going to happen it had better start soon, the first boomer has already filed for early retirement benefits so we'd already be pulling the rug out from under folks who are expecting to get paid! Every day such compromise / corrective action gets delayed the more difficult the political situation becomes.

MarkG Fm PA, the first boomer has already filed for early retirement benefits so we'd already be pulling the rug out from under folks who are expecting to get paid! Every day such compromise / corrective action gets delayed the more difficult the political situation becomes. True, but her benefits are covered by current FICA revenues. As are those for the next ten+ years. The boomer problem is a forty year problem, and the first quarter of it is already covered, with the next quarter, PROBABLY covered. That means the last half will be partially covered, and the last half is the diminishing half of the problem.

So changing anything in SS is problematical. Just as it was in 83 when they made the wrong (or maybe not) assumptions over GDP growth. Growth tops all.

Think of the political sell this way : you get to retire the last ten years of your life, not everything after 65 regardless how long people are living.

Social security hedges the uncertainty in how much you have to save for, not knowing you long you in particular will live. It might be a long time.

"The other point you made about Medicaid and SCHIP hit one of my triggers. These are NOT insurance, they are WELFARE, ie, charity."

But a government subsidy for health insurance for low income individuals isn't charity/welfare? Explain.

Aaron:

SCHIP/Medicaid is:

1. based solely on financial need (and SCHIP is based on self-reported income only)

2. requires no federally mandated copay or deductible

3. requires no premium

4. reimburses health care providers at Medicaid levels

Therefore, it is charity care and unsustainable above a few percent of the population.

A government partial subsidy of a private insurance policy or a MediCARE program would be different in all four respects. Financing subsidies for such a system through consumption and payroll taxes is sustainable-- and I would argue, a pro-growth use of federal funds.

My problem with expanding SCHIP is the notion that the program is "the same as" insurance and also the fact that it requires no rigorous needs-based analysis of the recipient. It's expansion becomes a substitute for middle-class insurance: have as many kids as you want because their health insurance is completely free.


"Edwards wants to remove the cap on FICA"

Things like this scare me the most. Because on the surface its sounds like, "o good more tax the rich" (if you support that kind of thing) so its likely to get support from the majority who are not rich.

but the shortsidedness is all too clear. Tax the rich when you are talking social security tax becomes "pay back the rich when they retire." It actually makes the problem worse, because then you will owe a new generation even more than you owed the baby boomers!

When it comes to payroll tax, the more you tax the more you have to pay back. Every dollar collect in payroll tax is supposed to be payed back to the worker. If you increase the dollars you collect from the worker today, you increase what you owe him tomorrow.

I wonder if Edwards realizes what he is supporting would ballon our national debt? Liabilities from social security and medicare are the second biggest component of the national debt.

You forgot about option C. Hold surplus funds in foreign assets so they are NOT a future liability of the US government.

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